Wednesday, October 1, 2008

U.S. Senate to Vote on Rescue Plan Wednesday Night - Alters Package

On Tuesday night, the U.S. Senate announced that it will vote on Wednesday night on a new version of the $700 billion bailout package for Wall Street, rekindling hopes that the credit crisis can be stemmed before claiming yet more banks and causing further damage to the global economy.

U.S. stocks, after suffering their worst fall in 21 years on Monday after the House of Representatives rejected the original package, roared back on Tuesday as investors bet Washington would manage to salvage the package and stabilize the financial industry.

The S&P 500 index shot up more than 5%, its biggest one-day gain in six years, and Asian stocks followed suit on Wednesday.

The revised package the Senate unanimously agreed to vote on would increase to $250,000 from $100,000 the amount of individual deposits insured by the Federal Deposit Insurance Corp (FDIC), seeking to shore up consumer and business confidence in banks.

It may also win over lawmakers trying to sell their constituents on an expensive plan funded by taxpayers and seen as benefiting wealthy financiers.

If the bailout package passes in the Senate, as expected, it will put more pressure on the House of Representatives to follow suit when it meets again on Thursday.

President George W. Bush, Treasury Secretary Henry Paulson and the two candidates hoping to succeed Bush as president, Republican Sen. John McCain and Democratic Sen. Barack Obama, reaffirmed their support for a bailout plan on Tuesday.

Both Obama and McCain said they would return to Washington for the vote, due to take place sometime after a series of votes starting at 7:30 p.m. EDT.

The plan, which would allow the Treasury to buy mortgage-related assets from banks, has been the main hope for government action to unlock credit markets.

"We're right at the moment where action is needed," Dominique Strauss-Kahn, managing director of the International Monetary Fund, told Reuters. "A non-perfect plan is better than no plan at all."

Global money markets remained frozen on Tuesday, and London interbank offered rates shot to record levels, indicating banks were not lending to each other. The rate for overnight dollar loans rose to nearly 6.9% from just over 2.5% on Monday. Overnight dollar borrowing costs stayed near 6% in Asia on Wednesday.

U.S. regulators were also readying a revision of the "fair value" accounting rule that has led to massive charges on mortgage-related assets, and has been blamed for deepening the credit crisis. That would mean U.S. banks would not need to mark hard-to-price assets down to "firesale" prices.

Presidential Candidates Comment on the Plan

"The first thing I would do is say, 'Let's not call it a bailout. Let's call it a rescue,'" McCain told CNN. He said, "Americans are frightened right now" and political leaders must give them an immediate solution and a longer-term approach to the problem.

Obama issued a statement saying that significantly increasing federal deposit insurance would help small businesses and make the U.S. banking system more secure as well as restore public confidence.

Sources: Reuters, Yahoo, New York Times

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